QCOM QUALCOMM Inc

By Brent Kendall 

WASHINGTON -- The Federal Trade Commission on Tuesday sued Qualcomm Inc., alleging the chip maker engaged in unlawful tactics to maintain its monopoly on a semiconductor device used in cellphones.

The FTC, in a suit filed in a California federal court, alleged that Qualcomm used its position as the dominant provider of baseband processors, devices that enable cellular communications, to impose onerous terms on phone manufacturers and hobble competitors.

Qualcomm won't sell its processors unless a customer agrees to the company's preferred patent-licensing terms, which forces phone makers to pay elevated royalties to Qualcomm when they use a competitor's chips, the FTC alleged.

The commission also alleged that Qualcomm wrongly refused to license its "standard-essential" patents to competitors despite an obligation to do so. The lawsuit additionally alleged that a Qualcomm exclusive deal with device maker Apple Inc. harmed competition.

"Qualcomm has engaged in exclusionary conduct that taxes its competitors' baseband processor sales, reduces competitors' ability and incentive to innovate, and raises prices paid by consumers for cell phones and tablets," the FTC said in its court filing.

The suit asks a federal judge to prohibit the alleged conduct and to take actions to restore a competitive landscape. The suit also seeks "redress" for Qualcomm's alleged violations, which potentially would allow a judge to impose monetary penalties.

The FTC's action came on a 2-1 partisan vote in the waning days of a Democratic majority at the commission. Current FTC Chairwoman Edith Ramirez, an Obama appointee, announced last week that she would step down Feb. 10.

Qualcomm said it would fight the FTC's suit, which it said is based on flawed legal theory and "significant misconceptions about the mobile technology industry." The company said it has never withheld or threatened to withhold its chips to gain unfair licensing terms, and it accused the FTC of filing the complaint before it had all the facts.

"This is an extremely disappointing decision to rush to file a complaint on the eve of Chairwoman Ramirez's departure and the transition to a new administration, which reflects a sharp break from FTC practice," said Don Rosenberg, Qualcomm executive vice president and general counsel.

The FTC's current lone Republican, Commissioner Maureen Ohlhausen, dissented from the filing of the lawsuit. She is likely to become acting head of the agency after President-elect Donald Trump takes office.

The FTC normally has five members but has been operating with only three commissioners for nearly a year. When Ms. Ramirez leaves, the FTC will have three vacancies. It could take months for the Trump Administration to fill those openings, but an eventual Republican-majority at the FTC would potentially have the ability to take a different course of action regarding Qualcomm.

In the intervening months, the lawsuit could leave Ms. Ohlhausen overseeing a case she didn't support.

In dissent, she said the lawsuit "lacks economic and evidentiary support" and would "undermine U.S. intellectual property rights in Asia and worldwide."

The FTC's probe of Qualcomm has been long-running, but commission staffers only finished their investigation recently, and that is why the lawsuit came so late in Ms. Ramirez's tenure, according to a person familiar with the matter.

Write to Brent Kendall at brent.kendall@wsj.com

(END) Dow Jones Newswires

January 17, 2017 18:12 ET (23:12 GMT)

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